March 4 (Bloomberg) -- U.S. Treasuries fell for a second day on growing speculation the Federal Reserve will lower interest rates by 0.75 percentage point this month.

Two-year notes led the declines, with the yield difference between the shortest-dated debt and 10-year notes at 190 basis points, still near the widest in more than 3 1/2 years. Traders raised bets on rate cuts on speculation policy makers are more concerned about reviving economic growth than curbing inflation.

``It's not a good time to go into the market,'' said Minako Iida, a strategist at Barclays Capital Japan Ltd. in Tokyo. ``The Fed will probably shift its focus from growth to inflation'' only after its March 18 meeting.

Two-year yields rose 4 basis points, or 0.04 percentage point, to 1.69 percent as of 9 a.m. in London, according to bond broker Cantor Fitzgerald LP, after dropping to 1.56 percent yesterday, the lowest since March 2004. The price of the 2 percent note due February 2010 fell 3/32, or 94 cents per $1,000 face amount, to 100 19/32. The 10-year yield climbed 3 basis points, to 3.58 percent. Yields move inversely to bond prices.

Bonds also fell on concern rising commodity prices and a weakening dollar will stoke inflation. Oil surged to a record $103.95 a barrel yesterday and was at $102.16 today. The dollar traded at $1.5194 per euro, after reaching $1.5275 yesterday, the lowest level since the euro's debut in 1999.

The yield difference, or spread, between two- and 10-year note yields widened to as much as 1.93 percentage points on Feb. 14, the widest since July 2004. Ten-year securities are more reflective of investors' perception of future inflation.

Fed funds futures contracts on the Chicago Board of Trade show the odds of the Fed lowering the target interest rate to 2.25 percent at its March 18 meeting have increased to 74 percent, from 68 percent yesterday. The rest of the wagers are on a 50 basis-point reduction.

The spread between 10-year yields and similar-maturity Treasury Inflation Protected Securities, or TIPS, widened 2 basis points to 2.48 percentage points. It was 2.56 points on Feb. 27, the most since June. The difference reflects the rate of inflation traders expect for the next decade.

To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.

Last Updated: March 4, 2008 05:10 EST